Challenges of Raising Capital for a Marijuana Business

These favorable numbers suggest now is a prime time to start a marijuana business, but raising capital can be challenging. Investing in any new business always carries risks, but the main obstacle for cannabis enterprises continues to be the federal government’s characterization of marijuana as an illegal substance.

Moreover, on the state level, regulations require marijuana businesses to disclose information about investors—which could scare off some folks—so you should make sure they know about applicable rules in advance to avoid surprises and delays.

How can you maximize your chances of raising capital and operating a successful marijuana business? Here are some tips:

1. Keep your business plan concise and comprehensive. Potential investors want to know you’ve thought through your plan down to the details—especially regarding equity division. Taking time to prepare a solid business plan can help you with the next tip, which is:

2. Know your stuff. Have a solid understanding of the ins-and-outs of the industry, so that you can anticipate questions. Also do some digging into your potential investors’ backgrounds, so you can address their specific concerns. Before accepting investments, you should know what your investors will expect and in what time frame, whether they’ve been involved in the marijuana business before, and if they have any useful connections to bring to the table.

3. Be honest in your projections. You’re probably going to be dealing with potential investors already quite knowledgable about the cannabis market. Don’t turn them against you by overselling projected returns on investment.

Having an attorney with experience in raising capital for marijuana businesses can be invaluable as you tackle this critical part of getting your company off the ground. You may only have a couple minutes to impress potential investors, so you want to go in with the best presentation possible.

Ready to learn more about raising capital for a marijuana business? Send us a message or call us at (314) 454-9100 today.

Mr. Gold is head of AEGIS Chicago office. He has close to 25 years of experience in structuring and executing transactions on both his own behalf and for a wide variety of primarily middle-market enterprises in healthcare, technology, real estate development, manufacturing and intellectual property.